State Champ Radio streaming royalties
While the Mechanical Licensing Collective’s announcement last month about the “final final” Phonorecords III Copyright Royalty Board rate determination adjustment seemed to imply songwriters and publishers were due another roughly $400 million to, sources say the number likely overstates the coming financial windfall.
After a more than two year wait that included an appeal process, a remand, a new partial rate trial, and then the time to recalculate and resubmit adjusted play reports, sources say that number may correctly assess how much more money was earned and reported due to the CRB determination covering 2018 through 2022 — but it also likely includes payments that have already been made.
Within the total adjustment, about $250 million in net extra mechanical royalties will be paid out thanks to the adjustment, with practically all of that coming from the 2021-2022 period. Those royalties will be paid out beginning in May by the Mechanical Licensing Collective, the agency created by the Music Modernization Act to collect and disburse mechanical royalties from on-demand digital streaming services. This means adjusted monies paid out by the MLC will probably begin reaching songwriters from their publishers in the following quarter.
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The rest of the roughly $400 million adjustment comes from performance royalties. But sources at the U.S. performance rights organizations say they are surprised by the MLC’s claim that another $138 million has been discovered in the resubmitted play reports required by the final rate determination.
The MLC may be the best positioned to understand this, though. Because the mechanical rate formula calls for the digital service providers to report how much they paid in performance royalties each month — or estimate how much they will pay — the MLC has insight into how much was reported collectively for mechanical and performance royalties for the period of 2018-2022 before the rate determination was finalized. It also has insight into how much performance royalties totaled after the play reports were resubmitted with the adjustments due to that final determination. The final determination happened in August 2023, eight months after the 2018-2022 term ended, with the resubmitted reports due Feb. 9, 2024.
In contrast, the PROs themselves only know what they each individually have been paid, and each digital service only knows what they individually have paid out to each PRO. Neither of those sides can see the whole performance revenue pool like the MLC can, unless they share information with competitors, which is unlikely but possible. Consequently, sources at PROs and digital services say they are surprised and puzzled by the MLC’s announcement that more performance royalties were found due to the adjusted reports. Others say the MLC’s announcement has caused consternation between songwriters and PROs. One source at a PRO suggests that the MLC including performance royalties in its report was a “marketing mishap.”
PRO sources insist that whatever performance royalties came in have largely already been paid out, and they don’t expect any new windfalls. And sources at the digital services say that, from what they can tell, the streamers have already paid out all the performance royalties that were due and they don’t expect to be making further payments.
Meanwhile, sources at PROs say the MLC’s announcement has caused significant confusion, leading songwriters to inquire about when they will get additional payouts for performance and why they were not made aware of this sooner.
Even if the performance royalties have already been paid, many executives in the music industry are speculating about what caused such a significant increase. The all-in mechanical formula that was determined by the CRB in Phonorecords III, by itself, doesn’t do anything to change performance royalties, which are typically decided by private negotiations between PROs and streaming services.
It’s possible digital services made mistakes when they reported the monthly performance royalties the first time around. The MLC could also have made a mistake either when it added up all the interim royalties paid while parties were awaiting a final determination or when it subsequently adjusted performance royalties for the period.
Alternatively, some of the PROs could have negotiated deals that tie their performance rates to the statutory mechanical rate. That would mean when digital services reverted to paying a lower mechanical rate while the 2018-2022 rate was still being determined, they wound up paying lower performance royalty rates, too — which later increased after the final CRB rate determination. But while some PRO sources concede that they try to negotiate for at least 50% of the statutory rate as a floor, they also say they don’t have any deal triggers specifically tied to the mechanicalrate.
Another theory is that one or two of the PROs might have been operating under an interim royalty rate with one or more streaming services while working through negotiations, which hypothetically weren’t finalized until recently. If those performance royalty rates have now been decided, the adjustments could be reflected in this total reported number. But several sources say they aren’t aware of any instances where this has happened.
It isn’t unusual for there to be streaming royalty adjustments after the fact, even without a new subsequent “final final” rate determination, sources point out. As it is, streaming services will sometimes need to make estimates on reporting monthly performance and mechanical royalty payments and then later adjust if necessary once the period has closed. At that time, the new payment would be made and the expense adjustment would be reported to the MLC — not two years later, sources say.
Performance and mechanical royalties have a see-saw effect where an increase in one will result in a decrease in the other. That’s because the formula for calculating the mechanical rate includes a first step in the formula that initially acts as a cap for an all-in publishing royalty pool that combines the two. This has publishers worried. If the services have already fulfilled all of their performance payments and the PROs have paid out all the received performance royalties, then how can the services now claim that $138 million as an additional deduction in the resubmitted reports? By claiming additional performance payouts, that would likely reduce the potential mechanical royalty payouts on the resubmitted report.
Aside from whether more money is coming, how these publishing royalties are paid — as performance or mechanicals — matters to publishers and songwriters.
For example, if that newfound $138 million in performance royalties needed to be paid out, it would likely mean that only about $120 million to $125 million of it would flow to songwriters and publishers because of the PROs’ overhead expenses.
If, instead, that $138 million was mechanical royalties, the songwriters and publishers would get all of that because the MLC has no overhead expense deduction since digital services finance the operation. But, instead of it getting paid out separately and directly split between publishers and songwriters, these royalties are paid to publishers, who then distribute royalties to their writers, but usually after recouping. So, the difference in where the payment comes through matters significantly to songwriters and publishers.
Overall, this adjustment seems to weigh more favorably for the mechanical royalty pool. Previously, during the interim period, the $2.77 billion in total publishing royalty payouts from digital services were weighted 50.93% to mechanical and 49.07% to performance. But after adjustments, including subtracting a slight overpayment in mechanicals for the years of 2018-2019, the $3.16 billion in total publishing royalties paid out by digital services to the PROs and the MLC works out to 52.63% paid in mechanical and 47.37% to performance, or nearly a two-percentage point increase for the former.
Eventually, when the MLC digs into the resubmissions and compares them to the earlier monthly play reports, it will likely be able to discern if the additional $138 million is coming across the board from all services or if a specific service or two accumulated the bulk of the new reported performance royalties. But if that doesn’t solve the mystery, another process is beginning that could bring in an answer. Last month, the MLC served notice on some 50 digital services that it is performing audits on them. If all else fails, that should bring some clarity to the mystery.
A year ago, Matt Najdowski, like many business managers for top artists, was routinely going over royalty statements when he discovered an unusual plunge in revenue.
For years, Pandora, the internet-radio streaming service, had paid 50% of song royalties to the artists through a collection agency called SoundExchange. But suddenly, artists signed to Universal Music Group were receiving a much lower percentage, similar to what they received from on-demand streaming services like Spotify or YouTube. And the payments were now arriving directly from UMG instead.
Najdowski researched further and learned UMG was able to change the way it reported Pandora revenue because Pandora itself had changed. In 2016, the streaming service began evolving from webcasting to a Spotify-style “search and play what you want” model. Because Pandora now offers an interactive service, rather than a non-interactive webcaster, it needed to make new deals with labels rather than relying on a government-mandated compulsory license at a standardized rate.
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As such, UMG and other labels were able to change the flow of royalties so they collected and paid them directly — rather than SoundExchange distributing to artists, as law mandates under these compulsory licenses. With UMG’s change in policy last year it became the first and only label so far, according to sources, to take advantage of this change. With that, the royalty splits for artists changed, too, from a 50% split through SoundExchange to whatever, often smaller, percentage their record deals dictated for on-demand streaming revenues. That’s significant as the world’s biggest record label contributed $135 million to SoundExchange as part of its Pandora share for artists, according to Billboard estimates based on financial reports and other public information.
“That specific royalty stream can range from a couple hundred dollars per month to a couple thousand. It can be a significant amount of money,” says Najdowski, royalty manager for Farris, Self & Moore. This change in accounting, he adds, “is more or less taking money out of [artist’s] pockets.”
Perhaps most notably, Najdowski discovered that the many UMG artists who are unrecouped – meaning they have yet to earn back the money the label spent on recording, marketing and other costs – were receiving a worrisome amount: zero. These acts were previously being paid directly by SoundExchange, so their unrecouped status with UMG was not an issue for these royalties. “A lot is being withheld, and it feels like a grab for money from the labels,” says Heather Gruber, royalty manager for Fineman West, a business-management firm that represents artists.
Although Pandora has struggled in recent years – monthly users have dropped from 81.5 million in 2014 to 46 million in 2023 – it remains a potent outlet for hitmakers such as SZA, Megan Thee Stallion and Lil Durk, as well as bubbling-under singles like contemporary-Christian singer-songwriter Lauren Daigle’s “These Are the Days.” Newer artists rely on the exposure, too, and Pandora royalties have provided crucial revenue while they absorb touring and merch expenses. “If you’re making millions of dollars, this isn’t going to have a big impact on you,” says Harold Papineau, associate lawyer for King, Holmes, Paterno and Soriano, which represents Metallica and others. “But if you’re living paycheck to paycheck, then this is a significant problem. Now you’ve lost money that you may have relied on to pay your bills.”
In a statement, a UMG representative responded by explaining the difference between interactive (like Spotify, YouTube and Apple Music) and non-interactive streaming services (like internet radio). For the former, recording royalties are “subject to direct negotiation between an individual rights owner and the service,” the rep said, adding that Pandora “has substantially changed its functionality such that it has evolved into an interactive service, where users can select tracks on demand.” In other words: The label has every right to make this change.
Still, UMG didn’t fully change the way it reported the royalties to artists until 2022, and it caught many business managers and music attorneys by surprise. “It kind of happened in the dead of night,” says Mike Merriman, a business manager for the firm PARR3 who represents DJ Alison Wonderland, singer 6lack and producer Louis Bell, among others. “It does create some ambiguity and lack of transparency.”
When the Pandora change first kicked in, business managers were confused about the streaming service’s identity. “We’re still running analysis on it,” says Erica Rosa, owner/vp of royalties and contract compliance at FBMM, a business management firm that represents top artists. “I’ve asked a lot of questions to attorneys and various industry figures: ‘How would you define Pandora? Would you consider it to be an interactive or non-interactive stream? I don’t know that anyone has given a clear definitive answer yet.”
Additional reporting by Glenn Peoples.
The Mechanical Licensing Collective (The MLC) has sued Pandora for allegedly failing to adequately pay and report its monthly royalties, including in its accounting for its ad-supported tier “Pandora Free” (also known as “radio” or “free Pandora”).
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In a lawsuit filed Monday (Feb. 12) in Nashville federal court, The MLC seeks to recover the royalties that Pandora allegedly owes them and all associated late fees. The MLC is particularly concerned with “unusually low royalties per stream” reported and paid out by Pandora, starting in 2021 which they say is due to the exclusion of substantial “Service Provider Revenue and TCC for Pandora Free.” (Total Content Cost or “TCC” refers to the amount paid by streaming services to record labels for the right to stream sound recordings. The TCC and Service Provider Revenue are essential to calculating the royalties due for this blanket license).
The MLC — which is tasked with administering the blanket mechanical license for musical works, created by the Music Modernization Act — also takes issue with Pandora’s lack of retroactive royalty accounting for 2021 and 2022.
In August 2023, the royalty rate for the license administered by The MLC for the years 2018-2022 was finally determined after a five year battle in which some streaming services fought to pay lower rates for music than the Copyright Royalty Board judges initially decided on. While awaiting the final rate determination, streamers, including Pandora, paid out the previous, lower royalty rate to the music business. Once the final determination was made, it set the rates higher than what the streaming services were paying previously. As a consequence, streamers were tasked to go back and retroactively pay the proper 2018-2022 rate for music.
The MLC says it “repeatedly” reminded Pandora to report its retroactive adjustments due for 2021 and 2022, and it set a deadline for Feb. 9, 2024, which it says Pandora did not reach. (The MLC did not open its doors until 2021, and thus the retroactive adjustments for 2018-2020 are not within its purview).
Pandora has made “repeated and significant underpayments of the royalties due,” says the MLC in its lawsuit.
The news comes just weeks after the MLC and its counterpart the Digital Licensee Coordinator (DLC) entered their first-ever re-designation process, a routine five year check-up to ensure the effectiveness and efficiency of the two organizations. The MLC has also made headlines recently for issuing its first-ever audit of streaming services. The organization is also being audited itself by Bridgeport Music, which represents George Clinton and Funkadelic.
Lately, the music business has been fighting back against what it feels are unfair or unpaid licensing rates. Universal Music Group recently pulled its catalog from TikTok, citing the app’s inability to pay “fair value” for music. Last summer, SoundExchange, which collects and distributes performance royalties for the digital transmission of sound recordings, sued SiriusXM, which owns Pandora, for an alleged $150 million in unpaid royalties, and the National Music Publishers Association (NMPA) sued Twitter for $250 million for “refusing to pay songwriters and music publishers.”
Representatives for Pandora and The MLC did not respond to Billboard’s request for comment at press time.
Since unveiling Spatial Audio in June 2021, Apple Music has been pushing labels and artists to rework their music in the immersive format. Now, the platform is offering a financial incentive in the form of increased royalties.
In a letter sent out by Apple Music to its partners on Monday (Jan. 22) and obtained by Billboard, the streamer revealed that beginning with month-end royalty payments in January, music available in Spatial Audio — which is supported by Dolby Atmos — will receive a royalty rate up to 10% higher than content not available in the format.
“Pro-rata shares for Spatial Available plays will be calculated using a factor of 1.1 while Non-Spatial available plays will continue to use a factor of 1,” the letter reads. “This change is not only meant to reward higher quality content, but also to ensure that artists are being compensated for the time and investment they put into mixing in Spatial.”
The letter offers an update on the format’s adoption by artists and users, including a claim that more than 90% of Apple Music listeners have experienced the format and that “plays for music available in Spatial Audio have more than tripled in the last two years.” It additionally states that the number of songs available in the format has increased nearly 5,000% since launch and more than doubled over the last year alone. The company further claims that more than 80% of songs to have charted on the platform’s Global Daily Top 100 in the past year are available in Spatial Audio.
Seemingly to deter bad actors, the letter includes a mention of Apple Music’s “zero-tolerance policy against deceptive or manipulative content,” noting the service has a “quality control process that includes flagging content not delivered in accordance with Apple Music’s Spatial Audio specifications and standards of quality.”
Spatial Audio officially rolled out on June 7, 2021. The format, which provides a surround sound experience in users’ headphones, is offered at no additional cost for Apple Music users, seemingly to speed adoption. As part of this effort, Spatial Audio tracks also enjoy enhanced visibility on the app’s home page, sitting higher than even new music releases. Early adopters of the format included Taylor Swift, Katy Perry, The Weeknd, Billie Eilish, J. Cole and Post Malone.
In a June 2021 interview with Billboard, Eddy Cue, Apple’s senior vp of internet software and services, conceded that encouraging artists to mix their tracks for Spatial Audio would be a challenge given the time, work and financial investment required.
“This is not a simple ‘take-the-file that you have in stereo, processes through this software application and out comes Dolby Atmos,’” Cue said at the time. “This requires somebody who’s a sound engineer, and the artist to sit back and listen, and really make the right calls and what the right things to do are. It’s a process that takes time, but it’s worth it.”
LONDON — European regulators are calling for sweeping new laws to help fix the “imbalance in revenue allocation” from music streaming and deliver higher rates of pay for artists and songwriters.
On Wednesday (Jan. 17), Members of the European Parliament (MEPs) voted overwhelmingly in favor of new legislation being drawn up to ensure creators are fairly compensated from music streaming with 532 votes for, 61 against and 33 abstentions.
The resolution is non-binding, meaning there’s no legal requirement for its recommendations to come into force, but the report’s endorsement by MEPs puts pressure on policy makers to address long-held complaints from musicians about low returns from streaming. The adopted text now passes to the European Commission for consideration.
“The Parliament is giving voice to the concerns of European creators, who are at the heart of the music streaming market,” MEP and rapporteur Ibán García Del Blanco said following Wednesday’s vote. Ensuring that authors are “credited and fairly paid has always been our priority,” he said.
The EU proposals state that current “pre-digital royalty rates” must be brought in line with “modern rates” and call on the industry to explore “fairer models of streaming revenue allocation” for artists and creators, including pro-rata and user-centric models “or totally new ones.”
The current global streaming model pioneered and dominated by Spotify, Apple, YouTube and Amazon Music leaves a majority of authors and performers with very low rates of pay and often means they are unable to sustain careers in music, say MEPs.
Over the past year, the standard pro-rata streaming model has been a major topic of consideration throughout the industry, leading to several of the leading streaming platforms to trial alternative models.
In September, Deezer announced that it was piloting a new “artist-centric” system in France in partnership with Universal Music Group that rewards artists and songs that actively driving listener engagement.
A few months later, Spotify announced that it too was looking to introduce changes to its streaming royalty model, including a new listening threshold that tracks must reach in order to qualify for royalties and a targeted clamp down on streaming fraud.
The EU report — titled “Cultural diversity and the conditions for authors in the European music streaming market” — does not reference those industry-led reforms. Instead, it calls on all stakeholders in the music business to take “all necessary steps” to overcome the current imbalances in the allocation of streaming royalties.
The report also strongly condemns the use of so-called payola schemes that force artists to accept lower royalty rates — or forgo them entirely — in exchange for greater visibility on streaming platforms.
One of its other key recommendations is that the EU takes action to protect the long-term prominence of European musical works on global streaming platforms by taking “concrete measures,” including the possibility of introducing quotas for European songs or artists.
Details on what form these quotas would take or how they would be implemented are not specified in the text, although quotas already exist in many European countries for domestic content broadcast on national radio and television stations.
“EU legislation should include diversity indicators to assess the array of genres and languages available and the presence of independent authors,” say MEPs, noting that the majority of streaming revenues go to major labels and big global stars, while less popular styles and less common languages are streamed less frequently.
On the subject of transparency and artificial intelligence (AI), the report says platforms should be obliged to make their algorithms and recommendation tools transparent to prevent unfair practice, such as the manipulation of streaming numbers.
In line with the terms outlined in the EU’s Artificial Intelligence Act — which was provisionally passed in December and forms the world’s first comprehensive set of laws regulating the use of AI — MEPs said music works generated by AI must be clearly labelled as such and unauthorized use of an artist’s voice or likeness banned.
Responding to the EU report, Helen Smith, executive chair of European independent labels trade body IMPALA, representing almost 6,000 music companies, said its adoption by MEPs “comes at a decisive time for the music sector.”
“The idea that artists should receive a fair contemporary digital rate reflects the independent sector commitment made almost ten years ago,” she said in a statement.
John Phelan, director general of international music publishing trade association ICMP, thanked rapporteur Ibán García Del Blanco for his “diligence and determination” in defending artists’ rights, while Jess Partridge, executive director of European Music Managers Alliance (EMMA) said the report “underlines the barriers faced by artists and their teams.”
“The music streaming market needs to properly reward those who are at the core of its success,” echoed Véronique Desbrosses, general manager of European Authors Society GESAC. “We count on the European Commission to take the next step and table the needed legislative proposals.”
The Mechanical Licensing Collective (the MLC) has issued notices of intent to audit all digital service providers (DSP) that operate under the compulsory blanket license administered by the MLC since its inception in 2021.
This includes a slew of different companies that license music, including on-demand streaming services (like Spotify, Apple Music, Amazon Music, Tidal and Deezer), internet radio companies (like Pandora, Mixcloud and iHeart Radio) and music apps (like Ultimate Guitar, PianoTrax and WeavRun). The audits are intended to ensure the accuracy of reported and paid royalties beyond the measures already taken by the MLC.
A representative for the MLC says that it will update its members on the results of any DSP audits that it conducts and will “clearly identify any monies recovered in audits on the royalty statements it provides to members.”
The right for the MLC to audit (and to be audited itself) is stipulated in the Music Modernization Act (MMA). The landmark 2018 law created a new blanket license for musical work mechanicals, replacing the previous song-by-song licensing system that proved to be complicated and ineffective for both digital services and the music business. Because of issues with the old piecemeal licensing system, a pool of $427 million in unmatched and unpaid publishing royalties had formed. The MMA also established the MLC to divvy up these royalties — often nicknamed “blackbox” royalties — and administer the new blanket license moving forward.
The news of the MLC’s auditing plans arrives a month after Bridgeport Music, the company that represents George Clinton and Funkadelic, opted to exercise its right to audit the MLC. Bridgeport Music is best known for its bullish approach to copyright enforcement, once accusing more than 800 artists and labels of infringement in one lawsuit in the early 2000s. It was also a defendant in the controversial Blurred Lines lawsuit along with Marvin Gaye‘s estate, which is believed to have greatly widened what elements of a song are considered protected under copyright law.
“Ensuring DSPs have reported royalties accurately is one of the MLC’s statutory responsibilities under the MMA,” says Kris Ahrend, CEO of the MLC. “The MLC has tapped music industry audit veteran, Jane Bushmaker, a member of the MLC’s Analytics & Automation team, to oversee DSP audits, which will be conducted by experienced outside audit firms.”
“The MLC’s audit right is a first in the 115-year history of the U.S. compulsory mechanical license and provides enhanced protection for songwriters and music publishers,” adds Alisa Coleman, chair of the board of directors at the MLC. “The audit notices filed by the MLC mark the beginning of its fulfillment of this important function.”
See below for a full list of companies the MLC intends to audit:
Amazon Media Venture LLC (AMP)
Amazon.com Services LLC (Amazon Music)
Anghami FZ LLC (Anghami)
Appcompanist, LLC (Appcompanist)
Apple Inc. (Apple Music)
Artist Technology Group DBA PANTHR Music (PANTHR Music)
Audiomack Inc. (Audiomack)
Avail LLC (The Cover Foundry)
Beatport LLC (Beatport)
Bill Graham Archives, LLC (Wolfgang’s Music)
Boxine GmbH (Tonies)
Choral Tracks LLC (Choral Tracks)
Classical Archives, LLC (Classical Archives)
Da Capo Music, LLC (Yes! Fitness Music)
Deezer S.A. (Deezer)
Fan Label, LLC (FanLabel)
Global Tel*Link Corporation (GTL)
Google, LLC (Google Play Music/YouTube)
GrooveFox Inc. (GrooveFox)
IDAGIO GmbH (Idagio)
iHeartMedia + Entertainment, Inc. (iHeart Radio)
JPay LLC (JPay)
M&M Media, Inc. (Trebel)
Midwest Tape, LLC (hoopla)
Mixcloud Ltd (Mixcloud)
MONKINGME S.L. (MonkingMe)
Music Choice (Music Choice)
Napster Group PLC (Napster)
Naxos Digital Services US Inc. (NAXOS)
Nugs.net Enterprises, Inc. (Nugs.net)
Pacemaker Music AB (Pacemaker)
Pandora Media, LLC (Pandora)
PianoTrax LLC (PianoTrax)
Power Music, Inc. (Power Music)
PRIMEPHONIC B.V. (Primephonic)
Recisio SAS (Karaoke Version)
Saavn Media Limited (Jiosaavn)
Securus Technologies, LLC (Securus)
Slacker, Inc. (Slacker/LiveXLive)
Smithsonian Institution (Smithsonian Folkways Recordings)
Sonos, Inc. (Sonos)
SoundCloud Operations Inc. (Soundcloud)
Spotify USA Inc. (Spotify)
TIDAL Music AS (Tidal)
Transsnet Music Limited (Boomplay)
TRIBL, LLC (Tribl)
Ultimate Guitar USA LLC (GuitarBackingTrack.com)
Weav Music, Inc. (Weav Run)
XANDRIE USA (QOBUZ)
Yoto Ltd (Yoto)
Functional content — think rain noises, whale sounds, recordings of wind rustling the leaves and the like — will be significantly devalued under Spotify‘s new royalty system: Plays of this audio will generate one fifth of the royalties generated by a play of a musical track, according to a source with knowledge of the streaming service’s new policy.
In response to a request for comment, a Spotify spokesperson pointed Billboard to the streaming service’s blog post from Tuesday (Nov. 21). The blog notes that, “over the coming months,” Spotify will “work with licensors to value noise streams at a fraction of the value of music streams.” The blog does not say what the fractional amount will be.
Spotify’s decision to count functional content at 20% of the rate for music tracks is the culmination of nearly a year’s worth of bad press for rain sounds and the like. While this type of audio is often used for the seemingly innocuous purpose of relaxing after a long and stressful day, Spotify wrote on its blog that the space is “sometimes exploited by bad actors who cut their tracks artificially short — with no artistic merit — in order to maximize royalty-bearing streams.”
This initiative, says Spotify’s blog post, is intended to free up “extra money to go back into the royalty pool for honest, hard working artists.”
As a result, some of the most powerful executives in music have launched a sustained assault on rain and its various non-musical cousins over the course of 2023. “It can’t be that an Ed Sheeran stream is worth exactly the same as a stream of rain falling on the roof,” Warner Music Group CEO Robert Kyncl told analysts in May.
Two months later, Universal Music Group CEO Lucian Grainge told analysts that streaming services must ensure that “real artists don’t have their royalties diluted by noise and other content that has no meaningful engagement from music fans.” He later amped up the rhetoric by describing companies that upload this content as “merchants of garbage” that were “flooding the platform with content that has absolutely no engagement with fans, doesn’t help churn, doesn’t merchandise great music and professional artists.”
When UMG rolled out a new royalty system with Deezer in September, the streaming service said it would replace “non-artist noise content” with its own functional music, while also excluding this audio from the royalty pool. “The sound of rain or a washing machine is not as valuable as a song from your favorite artist streamed in HiFi,” Deezer CEO Jeronimo Folgueira said. Deezer said plays of rain, washing machines and other non-music noise content counts for roughly 2% of all streams.
Spotify did not provide a comparable number in its blog post. It is taking one other step to limit the impact of functional content on the royalty pool: To generate royalties, a functional audio track must be longer than two minutes.
“These policies will right-size the revenue opportunity for noise uploaders,” Spotify wrote. “Currently, the opportunity is so large that uploaders flood streaming services with undifferentiated noise recordings, hoping to attract enough search traffic to generate royalties.”
In the new year, Spotify plans to roll out a new royalties model that will drive more money to more popular artists, record labels and distributors, while clamping down on streaming fraud.
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The scheme is three-pronged, based on Billboard’s reporting, creating a new streaming threshold that tracks must reach in order to qualify for royalties, penalizing fraudulent activity and setting a minimum play-time length for non-music noise tracks to earn revenue on the platform. The details on each of these elements have trickled out in the press without a formal announcement, but Billboard can now report specifics on each, according to sources in streaming and distribution.
Here’s a full rundown of Spotify’s new royalties model:
Tracks that receive less than 1,000 streams within a 12-month period will not qualify for royalties. Those royalties, instead, will be redistributed into the greater royalty pool.
Labels and distributors will be charged 10 euros for any track that is found to have 90% or more of its streams deemed fraudulent.
Non-music noise tracks must now be at least two minutes long in order to qualify for royalties. As well, according to a source, there are conversations about implementing a rate reduction on these tracks that would value their streams below those for music.
As previously reported, Spotify’s new royalty model will affect more than two-thirds of its song catalog but that’s due to the magnitude of music that’s uploaded to the platform, where the vast majority of songs don’t get listened to with any frequency. While tens of millions of songs will fall below the 1,000 streams threshold, a source tells Billboard that policy will only shift about 0.5% of Spotify’s royalty pool to more popular tracks. That was equal to about $46 million in royalties in 2022, out of $9.27 billion paid out in total.
The changes have been largely applauded by the music industry, although some in the independent distribution sector are concerned that the anti-fraud measures could disproportionately affect DIY distributors, even though major label acts sometimes engage in this activity too. These companies that have built hands-off, high-volume distribution businesses with small margins, charging a small fee per upload have huge batches of new music uploading daily, which means it’s hard to know who is doing the uploading.
DistroKid founder Philip Kaplan voiced his objection to the penalty system on a recent call with the Music Fraud Alliance, according to two sources who were also on the line.
One of those executives described the gist of Kaplan’s comments: “We can’t determine if a new client is going to hire a marketing service that’s going to bot streams until they’ve done it. It’s like you can’t determine if your neighbor is going to commit a crime.”
Spotify is planning to roll out its new royalties model in early 2024, although no firm date has yet been announced. The changes will not affect songwriters for the time being.
In the Mechanical Licensing Collective’s (The MLC) third annual membership meeting, the Nashville-based non-profit organization revealed that it has distributed $1.5 billion in total royalties to date to songwriters and publishers, up by about $500 million from March.
This year marked the Music Modernization Act‘s fifth anniversary since passing into law — the landmark occasion that instructed the MLC’s formation. As part of the law, a new blanket license was created for musical work (also known as “song” or “composition”) mechanical royalties that greatly simplified music licensing for digital services like Spotify and Apple Music, among others.
The previous, piece-meal system was not only complicated for the services — it also led to a growing pool of over $400 million in streaming royalties that were unallocated because the compositions’ owners couldn’t be found. (This is colloquially known in the business as “black box” money, although the MLC uses the term “historical unmatched royalties.”) The MLC was tasked to implement and administer this new blanket license and distribute the money in this stagnant royalty pool. It officially opened its doors on Jan. 1, 2021.
According to its latest report, The MLC has completed 31 monthly royalty distributions to date, each one of them completed on time or early. Its match rate for all royalties processed through October is also up 1% since their last reporting in March, rising from 89% to 90%. According to the MLC, the match rate represented the percentage of total royalties processed that were able to match to a registered work in their database.
The MLC reported a membership of 32,000 people — 9,000 of which joined in 2023 — and touts 33 million works in its database, with data for over 3 million works added in 2023 alone. An MLC spokesperson clarified that this metric means that there were 3 million new songs this year, calculated by taking the total number of songs registered at the beginning of the year and comparing that to the total number registered at the end of September.
During the membership meeting, The MLC also announced some new board appointments. Alisa Coleman was re-elected by The MLC’s Class B Members to serve on The MLC’s Board of Directors for a second three-year term; The MLC’s Class A Members selected Troy Verges to fill the open seat as a songwriter director of the board, a position previously held by Craig Wiseman; The Class A Members selected Kevin Kadish to serve a second three-year term as a songwriter director of the board. (The Class C membership will not change in 2024.)
“We are proud of these accomplishments, particularly in reaching the milestone of distributing over $1.5 billion in royalties,” said Kris Ahrend, CEO of the MLC. “We have effectively illuminated the black box by empowering our members with several tools that enable them to take actions intended to eliminate the black box. We look forward to continuing our work to fulfill our mission of ensuring songwriters, composers, lyricists and music publishers receive their mechanical royalties from streaming & download services in the United States accurately and on time.”
As part of the five year anniversary of the MMA, Congress hosted a committee hearing in June to review its impact on the music business so far. Ahrend, along with Garrett Levin (then-president and CEO, Digital Media Association), Michael Molinar (president, Big Machine Music), Abby North (president, North Music Group), Daniel Tashian (songwriter, producer) and David Porter (songwriter, producer) all spoke as witnesses.
Even if Spotify’s new royalty model won’t pay artists’ whose tracks don’t hit 1,000 streams in a year, songwriters will still earn money from those plays — for now, at least.
As Billboard reported last month, Spotify is planning to implement three changes to its royalty model early next year that would affect the lowest-streaming acts, non-music noise tracks and distributors and labels committing fraud. Under this new scheme, more than two-thirds of the tracks uploaded to that platform will be eligible to receive royalties — but that, notably, that will only impact about 0.5% of the royalty pool.
Nevertheless, this has sparked debate around the music community, with some questioning the ethics of not paying artists for whatever streams they garnered simply because they were not popular enough. Others supported the plan, citing the paltry sums an artist would be making for under 1,000 annual streams anyway (which amounts to about five cents). Many also believe this new rule could provide alleviate the issue of the royalty pool being divided among the exponentially-growing number of songs on Spotify’s platform, which likely dilutes the amount of money flowing to career artists.
But this change to Spotify’s royalty model does not affect songwriters and publishers payments at all, a source close to the company confirmed to Billboard. It just affects those who are involved in the master recording copyright.
For the uninitiated, there are two copyrights associated with every song released: the underlying musical work (often also called the “composition” or “song”) copyright, which protects the lyrics and melodies written by songwriters, and the master recording (also called the “sound recording”) copyright, which protects the artists’ one specific recording of that musical work.
In the United States, the royalty rates that songwriters and publishers can charge for the composition side of things are controlled by a government entity known as the Copyright Royalty Board. Every five years, the statutory rate structure for songwriters and publishers is renegotiated with the National Music Publishers’ Association (NMPA) as well as Nashville Songwriters Association International (NSAI) and other groups and individuals who represent the music industry’s fight to raise rates. (Other territories often base their publishing royalty rates off of those set in the U.S.)
Not everyone agrees on what specific rate structure they want, which has led to some infighting, but they all unite behind one principle: songwriters should earn more money. In fact, publishing earns just a fraction what the recorded music side does on streaming overall, the rates are far from equal. Many in the music business wish the current Copyright Royalty Board system could be abolished, freeing songwriters and publishers to negotiate rates in a free market without government interference, but this is unlikely to change, given it would require an act of Congress to overhaul an over one hundred year old law and services, many of which are owned by some of the world’s largest technology companies, would certainly lobby against it.
Those whose interests lie on the recording side, like record labels, get to negotiate directly with streaming services to set their royalty structure. This is why the streaming payment system can be experimented with in the ways seen now through Spotify’s recent changes, as well as Deezer’s new “artist-centric” payment plan, created with UMG. Overall, the publishing side of the business is handcuffed to whatever the current ruling says.
The system of streaming royalty payments for publishers and songwriters for 2023-2027 (also known as “phonorecords IV” “phono IV” or “CRB IV”), the current five year period, has already been set. National Music Publishers’ Association president and CEO David Israelite says it is possible that the next five year period, phono V, could be reconfigured to more closely mirror what is happening on the master recording side but that determination process won’t begin until about early 2026.
“We will have the benefit of watching how this plays out for a while before we ever have to address it, but it’s way too early to speculate what we might do,” says Israelite. Still, he adds, “it is horrible that we are locked in the statutory rate structure where we have no flexibility other than these five year windows but that is our situation… It’s a very different conversation than one company sitting down with another company and agreeing what they want to do [like it happens on the master side]. We are asking a court through litigation or an agreement to set a structure that applies to everyone and to build consensus around that. It’s much harder to change.”
